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Michigan college students struggle with soaring tuition as Congress fiddles over loan rates | Detroit Free Press | freep.com

Michigan college students struggle with soaring tuition as

Congress fiddles over loan rates

3:24 PM, June 30, 2013 |
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Wayne State University's tuition increase will fund research at places such as the Schaap Chemistry Building on campus. / Eric Seals/Detroit Free Press

By David Jesse

Detroit Free Press Education Writer

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Thousands of Michigan college students are getting punched in the wallet by a combination of tuition hikes averaging 3.45% and a doubling of interest rates on some of their loans that will go into effect Monday.

In the short run, they’ll be paying more on their annual tuition bills, with the highest increase at 8.9% announced last week at Wayne State University.

■ EMU: EMU regents OK 3.75% increase in tuition and $296 million budget

■ MSU: Tuition going up at Michigan State University, especially for upperclassmen

■ U-M: U-M regents approve 1.1% tuition increase, lowest in 3 decades

■ WSU: Wayne State will seek 9 percent tuition increase, source says

In the long run, Congress’ inability to meet Monday’s deadline to keep interest rates from doubling on new subsidized Stafford loans could soak students by up to $40 a month over the maximum 10-year life of their repayment plan.

The lack of action by politicians to solve the interest rate issue and college administrators to keep tuition from growing has irked parents and students, who are increasingly calling the national debate on college affordability nothing more than rhetoric.

Even if Congress does pass a measure soon that keeps the interest rate at 3.4% instead of 6.8% for another year, many of the long-range reform plans could still hurt students, experts said.

“It sucks,” said WSU student Marissa Cameron, 24, of Livonia. “(The universities) are pretty much forcing me to take a loan, and Congress is screwing me by not doing anything and letting the rates double.”

Many students depend on loans to pay college costs. Yearly tuition for the upcoming school year at Michigan’s 15 public universities will range from $8,429 at Saginaw Valley State University to $13,740 at Michigan Tech University in the Upper Peninsula. That doesn’t include room and board, books and other expenses.

Cycle of debt

Those taking out loans are borrowing more, a report by Equifax

shows. The company notes that the amount borrowed in the first quarter of this year is about $15.6 billion, or 20% more than was borrowed over the first quarter of last year. The report says the total student loan burden is fast approaching 1 trillion dollars, but the federal government and other experts said it has already hit that number.

The earliest the Democrat-controlled Senate will vote on a one-year extension to keep interest rates at 3.4% on new subsidized Stafford loans is July 10, nine days after the deadline passes.

“We need a one-year patch to keep interest rates from doubling onstudent loans

,” Sen. Elizabeth Warren, D-Mass., said Thursday as the Senate gave up on trying to meet the deadline. “That buys us the time.”

There’s no guarantee the Republican-controlled House will go along. The House already has passed a plan tying rates to the federal treasury bill rate.

All this is happening while the federal government projects making a $51-billion profit this year on student loans. With a doubled interest rate, the government could add $20 billion to its profits, the nonpartisan Congressional Budget Office projects.

The soaring costs and rising debt is trapping students, experts said.

“Most students are left with no viable way to afford college without taking on debt,” said Sara Goldrick-Rab, a professor at the University of Wisconsin who studies higher education. “No one should be forced to take on debt simply because they want the opportunity to receive an education that you have to have if you want to succeed and get a good job.”

Growing burden

The number of people taking out student loans and the amount they’re taking continues to climb, the newest data show.

The average size of a student loan has climbed 11% in the past year — from $5,618 in March 2012 to $6,242 in March 2013, Equifax’s National Consumer Credit Trends Report shows.

The total balance of outstanding student loans climbed 16% between May 2012 and May 2013, the same report shows. It went from $755 billion to more than $879.1 billion.

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“The total number of student loans outstanding has doubled since 2008, and balances owed have nearly doubled,” said Equifax Chief Economist Amy Crews Cutts. “Students who do borrow to fund college expenses are also increasing the amount they end up owing, in large part due to deferrals of interest payments when they leave college without a job or one that doesn’t pay well enough and they end up in an income-based repayment plan that doesn’t cover the total monthly interest owed.”

The report also shows students continue adding to their debt post-graduation, especially if they can’t pay and end up in a repayment plan. Among those who took out their loans in 2008, the overall increase added up to $719 million, or 1% of the loan total. For those who took out loans in 2009, it rose to $2.8 billion, 3.1% of the total. And for those who borrowed in 2010, it was an added $3.1 billion, 2.2% of the total.

What's behind increases

University of Michigan sophomore Lisa English, 22, was upset when she heard tuition was going up for the next school year.

But her level of anger dropped as she talked to her friends at other schools.

“They are all getting bigger increases than me, so I guess I’m not as upset,” said English of Warren. “But it’s hard to have to come up with more money every year.”

Twelve of Michigan’s 15 public universities have set tuition rates for next year. The average increase of 3.45% is slightly less than a 3.75% cap set by the state Legislature and Gov. Rick Snyder. Meeting the cap allows universities to garner bonus state aid.

The lowest rate increase was at U-M, where tuition is going up 1.1% for in-state undergraduate students. They will be paying about $13,137 for two semesters.

At WSU, the 8.9% tuition hike means students will be paying about $11,094 a year.

The universities say they need the money to continue providing a quality education for students and to do research to drive Michigan’s economy, especially as the state reduces higher education funding.

Solutions and problems

The number of plans to fix the federal student loan system may not quite equal the number of lawmakers, but there are plenty of options to choose from — ranging from a plan to extend the status quo for another year to President Barack Obama’s plan to tie the rates to market costs of borrowing. There are also several variations on each plan.

But they all have issues, said Heather Jarvis, a student loan expert and lawyer.

“Parents and students need to be aware that many of these plans have no cap on the interest rates on them,” she said. “Tying them to the market will make the rates low in the short term, but most people are predicting that in a few years, students will be paying more than they currently are.

“I think students are better off with fixed rates. They know what they are going to pay.”

Not having some sort of cap could seriously hamper students who want to go to college, according to the Institute for College Access and Success, a leading student loan expert group.

“As we, alongside other organizations that advocate for students and young people, recently wrote to Congress, a rate cap is essential to ensure that student loans (remain) affordable and that high interest rates don’t deter students from starting or completing college during periods of high and rising rates,” the group said in a news release Thursday.

Michael Proppe, the student body president at U-M, said tying the student loan rate to the 10-year treasury rate makes sense, as long as there’s a cap. He also likes Obama’s plan, which has a fixed rate based off the treasury rate.

“There are some proposals that kick the can down the road for another year or two, ensuring the same discussion in July 2014 or 2015 — students are tired of this fight and want a long-term solution,” he said.

Contact David Jesse: 313-222-8851 or djesse@freepress.com

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